Crude falls on inventories, notches 9.3% quarterly loss

NickGodt

SAN FRANCISCO (MarketWatch) -- Crude-oil futures settled lower Wednesday after a U.S. Department of Energy report was seen as bearish. It was a lackluster end for a quarter that saw oil's worst losses since the last quarter of 2008.

Prices had fluctuated earlier Wednesday as disappointing jobs data weighed against a report showing that manufacturing in the Chicago area remained at high levels.

Crude for August delivery declined 31 cents, or 0.4%, to $75.63 a barrel on the New York Mercantile Exchange.

Oil lost 9.3% on the quarter, breaking a winning run of five consecutive quarterly gains. Oil lost more than 55% on the fourth quarter of 2008.

Oil has gained 2.7% so far this month, following losses of 14% in May and gains of 2.8% in April.

Demand levels are key to oil's run in the second half of the year, as the supply glut is already factored in the current prices, said Bill O'Neill, a principal with Logic Advisors in New Jersey.

"I do not think we are going to see a double dip (recession), but a very, very slow recovery pace in the second half of the year ... it's hard to see reasons for a lot of optimism right now," he said.

The Energy Information Administration said Wednesday that crude-oil inventories dropped 2 million barrels on the week ended June 25, at the top of the range of expectations. Overall, however, crude stocks are well above average.

Refineries ran at 86.9% of their capacity, a decline of 0.3% from the previous week.

All told, total petroleum products inventories rose 3.6 million barrels and total demand fell 500,000 barrels, "a bearish combination," said Tim Evans, an analyst with Citi Futures Perspective in a note to clients.

"Considering the global scenario, the market performed quite well," O'Neill said. Instead of the nearly $76 a barrel seen on Wednesday, some market participants feared oil as low as $60 a barrel, he added.

Crude-oil futures had opened lower Wednesday, but ticked higher as a report showed that manufacturing in the Chicago area slipped a tad in June but held steady at expanding levels.

The Chicago purchasing managing index declined to 59.1 in June from 59.7 in May. Readings above 50% indicate overall business expansion.

Earlier Wednesday, payroll processor ADP said private-sector employment increased by 13,000 in June. Economists surveyed by MarketWatch had been expecting an increase of 65,000. Read more about the ADP report.

Natural gas kept above water, with the August contract advancing 7 cents, or 1.5%, to $4.61 per million British thermal units.

Natural gas gained nearly 19% on the quarter. On the month, natural gas rose 6%, its third consecutive monthly gain.

The EIA is due to report on natural gas in storage Thursday at 10:30 a.m. Eastern.

Analysts surveyed by Platts expect an increase of 61 billion to 65 billion cubic feet for the week ended June 25. A rise along those lines would be smaller than the 73 billion cubic feet increase for the corresponding week in 2009 and the five-year average of 82 billion cubic feet.

Reformulated gasoline for July delivery, the front-month contract that expired Wednesday, also reversed to losses. It lost a penny, or 0.6%, to $2.06 a gallon. Heating oil for July delivery, which also expired, retreated 4 cents, or 2%, to $1.98 a gallon.

On the quarter, gasoline futures retreated 11%, while futures rose 2% on the month.

Heating oil futures lost 6% on the quarter. On the month, futures added 2.3%.

Meanwhile, Hurricane Alex, which strengthened overnight from a tropical storm, was heading for the coastline near the Texas-Mexico border, but was likely to miss most oil and gas installations in the area. Landfall is expected late Wednesday or early Thursday. Read more about Hurricane Alex.

Several energy companies have reported evacuations ahead of Alex. BP PLC
BP, -1.72%
has warned the storm could hinder efforts to increase the volume of oil from its blown-out Macondo field some 40 miles off the coast of Louisiana.

On Tuesday, crude sank 3% as a drop in U.S. consumer confidence and a downward revision in a leading Chinese economic indicator sparked a broad market selloff.

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